Craftspeople looking to turn their hobby into a business can struggle to understand their tax obligations or what allowable expenses they are allowed to claim. So, we have outlined the key pieces of information necessary for all craftspeople to know!
According to HMRC, if you are making and selling items with the intention of selling them to make a profit then you are running a business and will need to register for Self-Assessment as well as declare any profit or loss made from your craft.
If your self-employed earnings for the 2020/21 tax year are less than £6475 – the Small Profits Threshold – then you do not need to pay Class 2 National Insurance Contributions. If your expenses outweigh your income or your total income from your business, employment and your investments is below the tax-free allowance of £12,500, then you will not need to pay tax on your business.
If your expenses are outweighing your income, you still need to register for a self-assessment – you can often get a refund of tax paid elsewhere by reporting your business losses.
To register your business, visit the HMRC website and follow the links to register as self-employed. If you register but are unable to complete your tax return on time, there will be an immediate penalty of £100 and penalties of £10 a day if you are 3 months or more late.
Once you have registered your business, your next priority should be recordkeeping and bookkeeping so you are able to keep track of your spending and have all the necessary paperwork on hand should it be required.
Your business is able to claim allowable expenses from your tax return as long as they are used wholly and inclusively for the use of your business. This includes things such as materials, tools, website design, stationery etc. You are also able to partially claim for things incurred partly for your business, such as phones, computers, internet and cars.
The Artisan Industry is certainly a difficult one to master – turning your hobby into a career comes with plenty of ups and downs. Knowing the key mistakes to avoid and the top tips to follow is essential for any business.